Accounting Chapter 24 Homework Business Division 140 Vs 100 The Business

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–1A

1.

Over Under

Budget Actual Budget Budget

Customer service salaries $ 546,840 $ 602,350 $ 55,510

Insurance and property taxes 114,660 110,240 $ 4,420

2. The customer service and marketing salaries are significantly over budget. The

director should investigate the cause of these results. One possibility is that the

PROBLEMS

VALOTIC TECH, Inc.

Budget Performance Report—Director, Consumer Products Division

For the Month Ended January 31, 2016

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2A

1.

West Central

Revenues $1,032,000 $1,872,000

Operating expenses 618,240 1,166,940

Supporting Schedule:

Service department charge rates for the two service departments, Customer Support

and Legal, are determined as follows:

West Central Total

Number of customer contacts… 6,000 9,000 20,000

Note (A) East Division: ($400,000 ÷

20,000 contacts) × 5,000 contacts

TRAXONIA RAILROAD INC.

Divisional Income Statements

For the Quarter Ended December 31, 2016

East

$870,000

563,300

5,000

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2A (Concluded)

2. The CEO evaluates the three divisions using income from operations as a

percent of revenues (profit margin). This measure is calculated for the three

divisions as follows:

East Division: 16% ($139,200 ÷ $870,000)

3. To: CEO

The method used to evaluate the performance of the divisions should be

reevaluated. The present method identifies the amount of income from

operations per dollar of earned revenue. However, this company requires a

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–3A

1.

Sales

Cost of goods sold

Cereal Division:

Snack Cake Division:

$480,000 $8,000,000

$8,000,000 $4,000,000

Retail Bakeries Division:

$682,500 $9,750,000

$9,750,000 $6,500,000

Invested Assets

=

Rate of Return

on Investment

ROI = ×

×

2. Rate of Return

on Investment = Profit Margin × Investment Turnover

ROI =

THE CRUNCHY GRANOLA COMPANY

Divisional Income Statements

For the Year Ended June 30, 2016

Sales

Cereal Snack Cake

Retail

Bakeries

Division Division Division

$25,000,000 $8,000,000 $9,750,000

16,670,000 5,575,000 6,795,000

Income from Operations

×

Sales

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–3A (Concluded)

3. Per dollar of invested assets, the Snack Cake Division is the most profitable

of the three divisions. Assuming that the rates of return on investments do not

24-25

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–4A

2.

Sales

Cost of goods sold

1

$2,480,000 + $105,000

2

$2,500,000 – $312,500

3

$2,480,000 – $560,000

2,585,000

$2,905,000

Proposal 3

$3,500,000

Profit Margin × Investment Turnover

MAXELL MANUFACTURING INC.—COMMERCIAL DIVISION

Estimated Income Statements

Rate of Return

on Investment

Invested Assets

Rate of Return

on Investment

Sales

=Sales

Income from Operations

×

Proposal 1

For the Year Ended December 31, 2016

Proposal 2

1. =

1,920,000 2,073,300

$3,500,000

1

3

5

6

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–4A (Concluded)

$980,000 $3,500,000

$3,500,000 $4,375,000

4. Proposal 3 would yield a rate of return on investment of 35.0%. Proposal 2 would

yield a rate of return on investment of 22.4%.

5.

3. = Profit Margin × Investment Turnover

Sales

= ×

Sales

Income from Operations

Invested Assets

×

Rate of Return

on Investment

Rate of Return

on Investment

Rate of Return

on Investment

= Profit Margin × Investment Turnover

Proposal 2:

ROI =

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–5A

1.

Sales

$357,000 $2,550,000

$2,550,000 $2,125,000

Sales

Income from Operations

Invested Assets

Business Consumer

Division Division

Rate of Return

on Investment

×

2. = Profit Margin × Investment Turnover

Rate of Return

on Investment

Consumer Division: ROI =

× Sales

PAVONE COMPANY

Divisional Income Statements

For the Year Ended December 31, 2016

$2,550,000

=

$2,500,000

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–5A (Concluded)

4. On the basis of income from operations, the Consumer Division generated

$107,000 ($357,000 – $250,000) more income from operations than did the

Business Division. However, income from operations does not consider the

amount of invested assets in each division. On the basis of the rate of return on

24-29

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–6A

1. No. When unused capacity exists in the supplying division (the Consumer

2. The Consumer Division’s income from operations would increase by $31,680:

Increase in Consumer Variable

(Supplying) Division’s Transfer Cost Units

Income from Operations = Price – per Unit × Transferred

$31,680 =($115 –$104) × 2,880

By selling to the Commercial Division, the Consumer Division earns $11 per unit

on these sales.

The Commercial Division’s income from operations would increase by $100,800:

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–6A (Continued)

3.

Consumer Commercial

Division Division Total

Sales:

14,400 units × $144 per unit $2,073,600 $2,073,600

2,880 units × $115 per unit 331,200 331,200

GARCON INC.

Divisional Income Statements

For the Year Ended December 31, 2016

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–6A (Concluded)

4. The Consumer Division’s income from operations would increase by $63,360:

Increase in Consumer Variable

(Supplying) Division’s Transfer Cost Units

Income from Operations = Price – per Unit

×

Transferred

5. a. Any transfer price greater than the Consumer Division’s variable expenses

per unit of $104 but less than the market price of $150 would be acceptable.

b. If the division managers cannot agree on a transfer price, a price of $127*

would be the best compromise. In this way, each division’s income from

operations would increase by $66,240.

* $150 – $104 = $46

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CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–1B

1.

Over Under

Budget Actual Budget Budget

Sales salaries $ 819,840 $ 818,880 $ 960

System administration salaries 448,152 447,720 432

2. The customer service salaries exceed the budget by 20% of budget ($30,520 ÷

$152,600). The manager should request additional detailed information about the

customer service department. There are several possible reasons for the budget

ADELSON INC.

Budget Performance Report—Supervisor, Eastern District

For the Month Ended December 31, 2016

24-33

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2B

1.

South West

Revenues $5,673,000 $5,130,000

Operating expenses 4,494,890 3,770,050

Income from operations before service

Supporting Schedule:

Service department charge rates for the two service departments, Dispatching and

Equipment Management, are determined as follows:

South West Total

Number of scheduled trains……

…

1,105 845 2,600

Number of railroad cars in

inventory…………………………

…

8,400 9,600 24,000

Note (A) East Division: ($182,000 ÷

2,600 scheduled trains) × 650

THOMAS RAILROAD COMPANY

Divisional Income Statements

For the Quarter Ended December 31, 2016

North

$3,780,000

2,678,500

North

650

6,000

24-34

CHAPTER 24 Performance Evaluation for Decentralized Operations

Prob. 24–2B (Concluded)

2. The CEO evaluates the three regions using income from operations as a percent

of revenues. This measure is calculated for the three regions as follows:

3. To: CEO

The method used to evaluate the performance of the regions should be

reevaluated. The present method identifies the amount of income from operations

per dollar of earned revenue. However, a railroad company requires a significant

24-35